Buying High

One of the easiest ways Cramer uses to identify potential picks is simply by watching the new-high list every day. Stocks on that list – the highest of the high – have something going for them or else they wouldn’t be there. Either they’re part of a major bull market or the individual stocks themselves have serious momentum.

Most of the stocks on the new-high list keep going higher unless something radical changes. But Cramer doesn’t just pluck names of the list thinking they will keep going up. Instead, he likes to wait for a stock to pull back from this list. The move gives a good, lower-priced entry point in a stock that’s probably going to rebound.

But you need to be confident the stock that pulled back is going to make a comeback, Cramer said. Sometimes stocks pull back for good reason because a company is troubled and investors think it’s going down. But more often than not, stocks pull back from their highs because of profit-taking or some kind of panic in the market. As long as the company’s fundamental picture doesn’t change, the stock probably hasn’t fallen from grace. The fundamentals must be intact, or this method won’t help a bit, Cramer said.

Bottom Line: Look for stocks that have pulled back from the new-high list – that’s the first method to Cramer’s madness, and where some of his best picks have come from.

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?